However, with two adjustments of half a point in June and July, monetary policy will be satisfied. The first reaction was a furious rally of relief. The second, the next day, was its complete reversal plus the addition of a new drop. The reasons Powell gave – the glimmer of hope that the core consumption deflator ignited with advances of only 0.3% in February and March, a notable slowdown in core inflation – had no effect. Chicago futures don’t buy even Powell’s pledge. A three-quarter point rise is listed for the next meeting with an 82% probability. And they do not believe that the Fed, which just put a pike at 1%, will be able to moderate its attack in the remainder of 2022. It will end up between 2.75% and 3.25% with a probability of 92%. It’s another irony: Wall Street never suffered from vertigo to conquer unattainable heights, and now look at these figures and get dizzy. And while there is much talk of raising rates, nothing eats away at faith more than the QT, the cutting of the balance. Of his mirror maneuver –QE or quantitative expansion– Ben Bernanke said: “it doesn’t work in theory, but it does in practice”.
It is worth reflecting: the liquidity that the Fed is going to withdraw in the remainder of the year is barely a fraction of the excess liquidity of the system, and yet its mere mention is a missile below the waterline. The stock market is faltering, the bear market is looming, the mantra is the global recession, and yet long rates are rising more than short rates, the bond curve is steepening; and escalate real rates. The duration that the QT will add is also not that great. Witches do not exist, but there are, there are. Why does all of this matter? Without stability in long rates, the markets will not have peace.
This is a marathon and not a sprint. And the sin of the markets is to run out of legs when the economy, employment and prices are still making strides. “Even the weakest data does not mean a recession,” says Frank Elderson, an ECB man, about the eurozone, trapped in its dependence on Russian energy. OPEC defined its conclave in just 13 minutes. There is no scope for higher oil production. The US added just five rigs in the past week. The shale will come to the tired, it is not a cavalry to the rescue. And the price of crude oil rises when everything else melts. Copper, for example, is worth less than in January. And where will diesel be obtained? Neil Kashkari, a dove at the Fed, said that if supply problems don’t subside, the brakes on the economy will have to be slammed on.
What remains at hand to twist fate? Let inflation moderate. Used car prices, the emblem of post-pandemic inflation, sank 1% in April. It is specified that for the third consecutive month core inflation, which is the best predictor of general inflation, will certify a rate of around 0.3%. Or 3.7% per year. This week, the consumer price report will give a clue. It is a necessary but not sufficient condition to encourage a more constructive vision, although it has already been said that Warren Buffet, at these prices, does not require it either to willingly spend his cash on shares.
Source: Ambito
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